Credit crunch and economic downturn – these terms have been bandied about so often lately that they’ve become commonplace in our vernacular. We’ve been warned of their impact and cautioned to brace ourselves in their wake. But how exactly do we define the terms “economic downturn” and “credit crunch,” and what are their real implications on our nonprofit sector?

Let’s start with “economic downturn.” Pretty straightforward, the term denotes the current recession experienced by the global markets following two-quarters or more of economic decline or falling economic growth. The key issues that led us here include things like house price bubbles, volatility in financial markets, rising commodity prices, and the good old credit crunch.

Which brings us to the next question: what exactly does “credit crunch” mean and what are the origins of this term? This credit crunch actually stems from the US housing market but has reverberated well beyond, affecting households and businesses throughout the world. It’s a shining testament to the realities of our global economy. Put simply, it refers to the reduced availability of liquidity in the financial markets (such as loans or credit), which has led to a sudden increase in the cost of obtaining loans from financial institutions. Thanks to our global markets, the sub-prime mortgage crisis in the US has sent shivers across the world. Add to that the overleveraging of financial institutions and one can understand why a credit crunch has officially impacted the worldwide markets. Meanwhile, the resulting lending freeze among banks has led to the economic downturn, discussed above.

The consequences of both the credit crunch and economic downturn for the economy, and for nonprofits are numerous and include some of the following:

• Falling house prices as mortgage lenders and banks become more cautious.
• A slowdown in economic growth.
• Reduced government funding and/or spending.
• Reduced consumer spending.
• A more competitive funding environment for the nonprofit sector with increased pressure to prove valuable returns.
• Organizations, individuals and public sector bodies with investments in failed institutions or falling stocks, and thus shares and endowments, will suffer.
• Individuals may reconsider their charitable giving, especially major gifts
  • although some evidence suggests that individual giving won’t fall, but that donors will focus on causes they already support.
• Corporate giving, especially sponsorship, will most likely be reduced or remain status quo for this year and next.
• As the value of assets falls along with interest rates, charity investments and legacy income will be affected.
• Trusts and foundations will maintain and some may reduce grants.
• The rise in unemployment could potentially lead to a larger pool of volunteers.
• The rise in unemployment will increase the demand for EI, welfare and community and social services including counselling, food banks, and job training programs (to name only a few).
• The demand for luxury items will likely decrease, including fee-charging non-essential purchases such as leisure activities.

 

So how does a nonprofit organization move forward despite an economic downturn and credit crunch? How do they manage in a more cautious, risk-averse and precarious environment? For one thing, organizations will need to work harder to convince funders of the inherent value and impact of their services. With that in mind, they should be asking themselves some of the following questions:

• Are we communicating our value and impact effectively?
• Are there strategies in place to deal with potential changes in future funding?
• Have we assessed our risk preparedness in light of the recession?
• Have we developed various scenarios to proactively plan for potential reductions in core funding and/or donations?
• Have we developed a recession plan to ensure that we are mobilized for action in case/when the recession impacts us?
• Can our income sources be diversified?
• Can we emphasize the sector’s competitive advantage to attract new employees with new skills from other sectors?
• Can we identify potential collaborators?
• Are there some ways we can be more efficient (e.g. outsourcing, shared spaces/resources, collaborations)?
• Can we reduce costs and ask for discounts?
• Is our volunteer management strategy effective? Can we attract some of the newly unemployed? Are we making the best use of their skills?

 

Proactive steps are most effective during these more challenging times. Now more than ever, an organization that can measure outcomes and demonstrate impact has a much better chance of securing funding and achieving mission success.

Nonprofit leaders may find value in following the nonprofit recession watch blog www.nonprofitrecessionwatch.com and visiting www.therestructureconference.ca for more information, resources and support. Both sites have been developed by ReStructure Non-profit Consulting as a means to provide leaders of nonprofit organizations with a central repository of information on the recession as well as strategies, tips, resources and training to manage the impact of the recession on the organizations they lead. Information relating to the recession and its impact on Canada, US and UK is updated daily in the “Recession Watch Data & Information” section, and blogs are provided to help promote information, research, events and strategies on how to manage in tough times.

Betty Ferreira is the founder of ReStructure nonprofit Consulting, which works to restructure, turn around and start up new nonprofit organizations. ReStructure provides a variety of consulting services, including organizational/financial assessments, strategic planning, as well as providing outsourced human resources and accounting services. Betty can be reached at betty@restructure.ca or visit www.restructure.ca, www.nonprofitrecessionwatch.com and www.therestructureconference.ca.